The structure of charity organizations provides for governance designed to protect the organization’s assets and the public’s interest in organizations exempted from payment of taxes. Charity organizations accept certain responsibilities and limitations in exchange for tax-exempt status, one of which is to maintain an organizational structure that provides for governance and oversight by a volunteer board.
State laws govern the creation of nonprofit corporations. Organizations file articles of incorporation with the appropriate state agency to receive designation as a nonprofit corporation. State laws also define the structure of corporations, which includes governance by a board of directors. The Internal Revenue Service looks to your nonprofit corporation’s organizing documents, or the articles of incorporation, to confirm that your organization has a charitable purpose that qualifies for tax-exempt status under section 501(c)(3) of the IRS codes. The IRS also requires a statement in your organizing document that disposal of the organization's property, or dissolution, will not benefit any person. The IRS grants tax-exempt status to qualifying organizations after submission and approval of applications.
Board of Directors
The volunteer board of director governs the charitable organization. The board has a legal responsibility to assume stewardship over your organization’s finances and property. The board ensures that your organization operates within its charitable purpose. The articles of incorporation and bylaws provide for the seating of board members and the policies for board operations. Many boards establish committees – such as budget and finance, fundraising, programming, and human resources - to provide oversight and perform the board’s work. The board is responsible for hiring and supervising the chief executive officer.
The charitable organization structure include employees, beginning with the chief executive officer, who reports directly to the board of directors and who is responsible for managing the organization’s day-to-day and long-range operations. The CEO supervises executive staff, which includes directors or vice presidents of critical operational areas, such as development, finance, programming, operations, and human resources.
Departments and Divisions
Your organization’s directors or vice presidents oversee their departments and usually supervise directors who are responsible for divisions or offices within the departments. For instance, the development office might include fundraising, public relations, and marketing. Budget and finance might include accounting, operations and human resources.
Charitable organizations use different terminology for the board of directors, the chief executive officer, and departments and division. Charitable organizations that have members are governed by their membership through the voting process. The IRS accepts only certain types of charitable purposes for 501(c)(3) tax exempt status. They include educational, religious, literary, and scientific, for example. The IRS posts a detailed list of exempt purposes on its website.
Many states don't require the addition of language in the articles of incorporation listing charitable purposes and a plan for dissolution of assets; however, the IRS requires the information in your organizing documents.